Canada's OMERS eyes global deals as assets rise again

Andrea Hopkins

5 Min Read

TORONTO (Reuters) - Canadian pension fund OMERS said on Friday it wants to diversify beyond its traditional strongholds in North America, Britain and Western Europe, but will remain focused on property, healthcare, infrastructure and energy assets as it seeks deals around the world.

OMERS, which manages the pension plan for Ontario’s public-sector municipal workers and has become a global dealmaker by virtue of its deep pockets, said it is just looking for the right opportunities based on risk and reward.

“We’ll be highly focused in terms of the sectors we’re looking at. We have investments in energy, large infrastructure projects on a world-wide basis, in healthcare and in pipelines, and we’ll continue to look for those kinds of opportunities around the world for the right risk-return,” OMERS chief financial officer Patrick Crowley said in an interview.

“I don’t think we want to restrict ourselves to any one particular jurisdiction — we have a large fund and we’re very active and we want to get the best return for our members.”

OMERS has been a major buyer of private market assets for more than a decade, accelerating the pace of acquisitions after the onset of the global economic crisis of 2008-09.

It said Friday it notched a 10 percent return on investments in 2012 as its private equity, property and infrastructure portfolios made strong gains, offsetting losses on its investment in Alberta’s oil and gas sector.

Net assets at the fund grew to C$60.8 billion last year from C$55.1 billion at the end of 2011.

“The C$5.7 billion increase in our net assets demonstrates the strength and robustness of OMERS business model with the capacity to generate growing investment cash yields and more than ample liquidity to withstand market shocks under stressed financial conditions,” Michael Nobrega, OMERS president and chief executive, said in a statement.

The Toronto-based pension plan also said it rang up returns of 19.2 percent in OMERS Private Equity, 16.9 percent in Oxford Properties, 12.7 percent in Borealis Infrastructure and 7.5 percent in capital markets.

A negative 10.1 percent return in OMERS Strategic Investments, which represents less than 3 percent of OMERS net investments, was due to year-end valuations of its principal assets in Alberta’s energy sector as oil and gas prices fell to their lowest levels in five years.

Crowley said he expects that investment to pay off down the road, as OMERS benefits from the patience and long investment horizon that competitors may not enjoy.

“This is an investment where the gas and the oil is still in the ground, we have the properties, we valued those properties based on forecasts of prices for next three to four years, but we believe longer-term this remains a very good investment, and it is something we’re still committed to,” Crowley said.

“Not only Alberta but also this sector, and we think this could be a big opportunity for us to take advantage of people who may not have liquidity to stay in the business.”

The 2012 total investment return of 10 percent far outpaced the 3.2 percent return in 2011 and edged out the plan’s benchmark return of 9.75 percent, the fund said.

OMERS said it was still working to overcome investment losses in 2008 stemming from the global financial crisis. Its five-year annualized rate of return is 3.56 percent, while its 10-year rate of return is 8.24 percent. In the last four years since the financial crisis, the plan has notched an 8.9 percent investment return.

Crowley said OMERS, which competes with sovereign wealth funds as well as other big pension funds for acquisitions and investment deals globally, would continue to rely on partnerships to minimize investment risks in equity deals that require “quite large” checks to be written.

“We’ve looked at bringing in people to co-invest along side with us, and that has worked out reasonably well,” said Crowley, pointing to its move last year to team up with Japan’s pension funds and some major conglomerates to form the world’s largest infrastructure fund to invest in assets such as roads and airports with greater agility.

“If you have that in place you can take advantage of opportunities faster, more efficiently, and there is not as much negotiation among yourselves as to what you are going to bid, because all of that is settled up front. That is the advantage of this type of arrangement,” said Crowley.

The partnership has been seen as an unprecedented effort to cut out asset managers as middle men in infrastructure investment and compete head-to-head with the handful of the world’s biggest funds that have the capacity to lead their own investments in infrastructure assets.